Could the UK join a Pacific trading block?

The Trans-Pacific Partnership (TPP) is a new kind of trade deal between 11 countries all bordering the Pacific Ocean, a trade block which is actually more about trade than political integration. It also previously included the USA, who were the original drivers of the trade pact in an attempt to tie these countries closer to the US market.

However, under Donald Trump the US has withdrawn from the deal leaving Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam as the surviving members.

Individually all these countries are potential candidates for trade deals for the UK, but collectively the TPP could be the sort of trade deal the UK needs in order to develop a truly global trade policy. The zone covers 500 million people and about 14% of global economic activity. 

The TPP (currently termed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership [CPTPP] after the US withdrawal) was originally signed on the 4th February 2016, but since the US withdrawal it has been renegotiated and the remaining members eventually reached an agreement earlier this month.

This new agreement’s full text is yet to be released but is substantially less ambitious than the original TPP. Nevertheless, it cuts tariffs on thousands of product types and also aims to eliminate many non-tariff barriers to trade. Crucially, it reportedly includes a negative list of protected sectors, which means that all other sectors are covered unless they are included on the list. This gives a default position of tariff free trade unless a sector is specifically excluded; one estimate is that 98% of tariffs will be eliminated inside the TPP zone.

There are clear attractions for the UK in the TPP, on both services and goods.

Canary Wharf

The TPP is more advanced on trade in services than many FTAs, with a clear ambition to expand further on liberalising trade there between block members. As a heavily service-based economy this is of particular interest to the UK, and the opening up of public procurement markets, more limited in the final agreement than earlier drafts, is nevertheless of interest to the UK, particularly the lucrative Japanese market. UK companies have been trying for decades to move into the Japanese transport procurement market, so this is a potentially big prize.

The UK in particular has a big interest in accessing the large and wealthy Japanese consumer food market with some of its higher value export brands and products, many of which are already recognised in that country. Due to political sensitivities dairy is a sector specifically excluded from the scope of the agreement, which will probably be a relief to the UK farming lobby, which would face stiff competition from some TPP members.

The TPP also contains limited provisions on investor state dispute settlement mechanisms, which often attract political controversy, such as that around the proposed EU-US trade deal, TTIP, and the EU-Canada agreement, CETA. The reality of these provisions in current agreements has been to protect British companies from discriminatory actions of foreign governments which risk undermining the market opening the trade agreements have achieved. Nevertheless, the limited provisions included in this agreement are unlikely to attract controversy, making the deal an easier sell for a British government of any political stripe.

In recognition of the fact it is a completely 21st century agreement, the TPP also reportedly includes more details on digital trade than earlier free trade pacts, looking at standards for online commerce for example. As one of the leading ecommerce economies in the world, this is good news for the UK, and the UK online consumer market, more developed than many countries, is also an attractive destination for TPP countries.

Ecommerce

Interestingly there are also reportedly provisions on workers’ rights and the environment, not entirely dissimilar to those in the EU, though less prescriptive, aimed at reassuring more developed economies that their companies will not be exposed to unfair competition from within the TPP area. The text also apparently includes technical and sanitary requirements for cross-border trade in food, again aimed at providing the more advanced economies in the TPP with confidence that their public health will not come under threat from freer agricultural and food trade with some of the less developed economies. All of these protections are of significant interest to the UK given controversy over the recent, now dead, proposed deal between the EU and the US, TTIP.

To sum up, given the TPP is likely to grow and could one day include the US (President Trump has already raised the spectre of the US re-joining it at some point) or even China, there is a real benefit to the UK joining in its early days, and real opportunities for the UK in services and for British food producers in accessing the Japanese market.

Donald Trump

The most common argument against the UK joining is that it is not a pacific nation, but neither are a number of other potential candidates to join and the UK is geographically closer to some TPP members like Canada than Canada is to other members such as New Zealand, such are the vast distances across the pacific. There’s also more trade between the UK and Canada and the UK and New Zealand than there is between Canada and New Zealand.

The TPP is a good example of the growing globalisation of trade and the wealth of opportunities that represents to the UK, particularly as ever more trade becomes digital. It's also an important development in world trade, and something the EU would be unlikely to ever join, precisely because it is more about trade than political integration. If TPP takes off it could mark a paradigm shift, ending an era of trade pacts as a means to political ties, and refocusing global trade policy on trade itself, an innovative idea in the EU.